scorecardresearch

I have SIPs in 5 equity funds. Should I continue investing in them?

Sumeet Inder Singh has been investing Rs 6,000 per month in equity funds for the past three years. Here is what he should do with his fund portfolio.

Sumeet Inder Singh is 43 and has two children aged 8 and 13. He has been investing Rs 6,000 per month in equity funds for the past three years to build a retirement corpus and to save for his children’s marriages. Here is what he should do with his fund portfolio.

I have SIPs in five equity funds. Should I continue investing in them or buy some other funds?

You have rightly chosen equity mutual funds for achieving your goals. Both your financial objectives are long-term and equities give very attractive returns over a longer duration. The Rs 6,000 you invest in the five equity funds every month will grow to Rs 37 lakh in 17 years, assuming an annualised return of 12%. Also, you have chosen the correct method of investing in equities. SIPs help small investors tide over the ups and downs in the stock markets. They help improve your returns during volatile times by averaging out your cost of purchase.

A Mix Of Good And Bad
The five funds in Singh's portfolio and what he should do about them.
 
Returns (%)
 
Fund Name
1 yr
3 yrs
5 yrs
Suggested Action
DSP BlackRock Equity
-30.91
0.27
20.95
A solid performer. Increase SIP to Rs 2,000 a month.
HSBC Equity
-31.92
-0.41
17.03
Continue investing in this long-term performer. Raise SIP to Rs 2,000.
IDFC Premier Equity
-35.73
0.12
-
Reduce SIP from Rs 2,000 to Rs 1,000 per month.
Reliance Equity Opp
-38.12
-
-
Hasn't done well. Stop investing in this fund but don't redeem.
Magnum Multicap Fund
-41.77
-11.55
-
Another dud in the portfolio. Needs to be junked altogether.
Category average
-39.60
-8.51
13.27
 
Returns as on 31 March 2009; Returns over 1 year are annualised

Choice of funds: While your investing strategy is laudable, the same cannot be said of your choice of schemes. Your mutual fund portfolio is a mixed bag. There are two long-term performers (HSBC Equity and DSP BlackRock Equity), one mediocre fund (IDFC Premier Equity) and two underperforming schemes. Both HSBC Equity and DSP BlackRock Equity have outperformed the category average in the past one year. The margin of outperformance is smaller in case of IDFC Premier Equity and negligible in case of Reliance Equity Opportunities. The black sheep in your portfolio is the Magnum Multicap Fund, which has underperformed the category average by a yard. The table shows annualised returns of investments done one, three and five years ago. Your SIP returns will be lower.

Rejig your SIP allocation: Currently, you are investing Rs 6,000 a month in these five funds. We suggest you rejig the allocation by stopping the SIPs in both Reliance Equity Opportunities and Magnum Multicap Fund. You could also reduce the SIP in IDFC Premier Equity from Rs 2,000 a month to Rs 1,000. Both HSBC Equity and DSP BlackRock Equity should be rewarded with increased SIPs—from Rs 1,000 to Rs 2,000 a month.

Add a balanced fund: It still leaves you with Rs 1,000 to invest. Consider investing this in a balanced fund with a good long-term performance record. The Birla Sun Life Balanced Fund, DSP BlackRock Balanced Fund and the Principal Child Benefit Fund are three solid performers in this category.

Keep faith in equities: The past 15 months have been very trying for equity investors. The wealth created over five long years has been wiped out. People who started investing in equities only in 2007 are sitting on huge losses. Some of them have stopped investing in equities altogether and are now focusing on debt. What they need to understand is that the economy is witnessing a slowdown after several years of scorching growth. But a slowdown is not the end of the world and the economy is likely to recover eventually.